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Allahabad High Court · body

2008 DIGILAW 2143 (ALL)

NARESH CHANDRA SHARMA v. AVADH RUBBER LTD.

2008-10-19

NARAYAN SHUKLA

body2008
JUDGMENT Hon’ble Shri Narayan Shukla, J.—Heard Mr. Faisal Ahmed Khan, learned counsel for the petitioner and Mr. Devendra Mohan Shukla, learned counsel for opposite party No. 1. 2. The opposite party No. 1-Avadh Rubber Limited is a public limited company incorporated under the Companies Act, 1956. The petitioner has filed the present company petition for winding of the company under Section 433(e) of the Companies Act as the company has failed to pay the salary to the petitioner for some periods and the same has become due. 3. Learned counsel for the opposite party No. 1 has raised objection against the maintainability of the writ petition that for the payment of arrears of salary, the company may not be wound up under Section 433 (e) of the Companies Act as the arrears of salary is not debt. 4. To determine the question as to whether the arrears of salary is debt or not and on default of payment of arrears, the company is liable to be wound up or not, the relevant provisions of the Act are to be considered, which are quoted herein-under : “Section 433. Circumstances in which company may be wound up by Tribunal.—A company may be wound up by the Tribunal— (a) ................ (b) ................ (c) ................ (d) ................ (e) if the company is unable to pay its debts; (f) ................. (g) ................ (h) ................ (i) ................. “Section 439. Provisions as to applications for winding up.—(1) An application to the [Tribunal] for the winding up of a company shall be by petition presented, subject to the provisions of this Section,— (a) by the company; or (b) by any creditor or creditors, including any contingent or prospective creditor or creditors; or (c) by any contributory or contributories; or (d) by all or any of the parties specified in clauses (a), (b) and (c), whether together or separately; or (e) by the Registrar; or (f) in a case falling under Section 243, by any person authorised by the Central Government in that behalf. (g) in a case falling under clause (h) of Section 433, by the Central Government or a State Government. (2)............................... (3)............................... (4)............................... (5)............................... (6)............................... (7) .............................. (8) .............................. (g) in a case falling under clause (h) of Section 433, by the Central Government or a State Government. (2)............................... (3)............................... (4)............................... (5)............................... (6)............................... (7) .............................. (8) .............................. "529-A. Overriding preferential payment.—Notwithstanding anything contained in any other provision of this Act or any other law for the time being in force, in the winding up of a company— (a) workmen’s dues; and (b) debts due to secured creditors to the extent such debts rank under clause (c) of the proviso to sub-section (1) of Section 529 pari passu with such dues, shall be paid in priority to all other debts. (2) The debts payable under clause (a) and clause (b) of sub-section (1) shall be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions." 5. As is evident, Section 433(e) speaks that a company may be wound up by the Tribunal if the company is unable to pay its debts and Section 439 (b) speaks that an application for winding up of a company shall be by petition presented by any creditor or creditors, including any contingent or prospective creditor or creditors. The employee, who is not a creditor has no right to move an application for winding up of the company for the payment of the arrears of salary is not a debt. 6. Apart from the aforesaid provisions of the Act, to support his contention, learned counsel for the opposite party No. 1 has drawn the attention of this Court towards the judgment rendered in the case of Pawan Kumar Khullar v. Kaushal Leather Board Limited, AIR 1996 MP 85 in which the petitioner on not payment of salary approached the Court with the prayer that the company itself be wound up and the Hon’ble Court held that there is a difference between the debt and salary. The salary is the remuneration paid to a person or employee in lieu of services rendered by him/her whereas debt is not remuneration. Debt is something which is borrowed by a person on settled terms and conditions and settled rate of interest and can be re-settled between the parties. 7. He further placed reliance upon the judgment rendered in the case of National Textile Workers’ Union and others v. P.R. Ramakrishnan and others, 1983 (1) SCC 228 . Debt is something which is borrowed by a person on settled terms and conditions and settled rate of interest and can be re-settled between the parties. 7. He further placed reliance upon the judgment rendered in the case of National Textile Workers’ Union and others v. P.R. Ramakrishnan and others, 1983 (1) SCC 228 . In this case, there was a dispute between two groups of share holders and since it could not be settled amicably, a petition for winding up of the company was filed. The employees of the company through its Union also filed an application for impleadment as respondents. Their locus to appear and oppose the winding up petition was challenged on the ground that the workmen who were members of these three Unions were neither creditors nor contributories of the Company. The Company Judge held that workmen had no right either to get impleaded in the winding up petition or even to intervene in the winding up petition. It was observed that the duty of the Court to consider the interest of the workers of the company would not create a right in such workers to intervene in the absence of express provision in the Companies Act and in the teeth of such right specifically conferred only on the creditors and contributories”. The Union preferred an appeal before the Division Bench of the High Court but the Division Bench also took the same view and held that though it was undoubtedly true that while disposing of a winding up petition preferred on the ground that it is just and equitable to wind up the Company, the Court must consider the interest of the workmen, it does not mean “that everybody who is remotely interested in the Company can file an application to implead himself as a party in the petition for winding up” and “merely because in considering the question whether to wind up or not the Court has also to take the larger point of public interest including that of the workers into consideration, it will not clothe the Unions with any locus standi to file applications for impleading themselves as parties or to be heard in the company petition”. 8. Ultimately, the matter went to the Hon’ble Supreme Court. 8. Ultimately, the matter went to the Hon’ble Supreme Court. Before the Hon’ble Supreme Court, the following question was for determination : “When a petition for winding up a company is filed in Court, are the workmen of the company entitled to ask the Court to implead them as parties in the winding up petition or to allow them to appear and contest the winding up petition or they have no locus standi at all so far as winding up petition is concerned and they must helplessly watch the proceedings as outsiders thought the result of the winding up petition may be to bring about termination of their services and thus affect them vitally be depriving them of their means of livelihood?” 9. On behalf of the respondents, it was contended that they are entitled to an opportunity to be heard against the making of the winding up order, because under the Companies Act, 1956, it is only the creditors and contributories and in certain specified contingencies, the Registrar and the Central Government, who can present a petition for winding up a company and the workmen have no locus at all in a winding up petition except where their dues have remained unpaid in which case they would be entitled to be heard in a winding up petition, but that would be in their capacity as creditors and not as workmen. Thus, the real controversy was not whether the unions of workmen are entitled to be heard in a winding up petition but whether the workmen have such right when a winding up petition is filed against a company. On behalf of Unions, a narrow contention advanced that the workmen were entitled to intervene in the winding up petition and to be heard before any order was made by the Company Judge in the winding up petition, because any such order might affect the interest of the workmen. The respondents 1 to 5 however seriously challenged the locus of the workmen to appear and be heard in the winding up petition and contended that so far as the winding up petition is concerned, it is only the creditors and contributories and in certain specified contingencies the Registrar and the Central Government who are entitled to appear at the hearing of the winding up petition whether to support or to oppose it. The right to be heard in winding up petition is governed solely by the provisions of the Companies Act, 1956 and since no such right is conferred on the workmen by any provision of the Companies Act, 1956, the workmen are not entitled to intervene in the winding up petition, even though the making of a winding up order may result in termination of their services. The workmen, according to respondents 1 to 5, could appear at the hearing of the winding up petition and make their submissions only in their capacity as creditors if any part of their wages remained unpaid by the Company but they had no locus to appear in their capacity as workers. The respondents further submitted that Section 439 confers the right to present a winding up petition only on certain specifically enumerated persons and the workers are not included in that enumeration and therefore obviously, the workers have no right to prefer a petition for winding up of a company. The right to apply for winding up of a company being a creature of statute, none other, than those, on whom the right to present a winding up petition is conferred by the statute can make an application for winding up a company and no such right having been conferred on the workers, they cannot prefer a winding up petition against a company. Thus, it was urged that the winding up of a company is intended to be for the benefit of the creditors and the contributories and the interest of the workers has no place at all in the winding up and is not required to be taken into account in winding up the company. 10. After hearing the rival submissions of learned counsel for the parties, the Hon’ble Supreme Court expressed its view that the workers are entitled to appear at the hearing of the winding up petition whether to support or to opposite it so long as no winding up order is made by the Court. The workers have a locus to appear and be heard in the winding up petition both before the winding up petition is admitted and an order for advertisement is made as also after the admission and advertisement of the winding up petition until an order is made for winding up the company. The workers have a locus to appear and be heard in the winding up petition both before the winding up petition is admitted and an order for advertisement is made as also after the admission and advertisement of the winding up petition until an order is made for winding up the company. If a winding up order is made and the workers are aggrieved by it, they would also be entitled to prefer an appeal and contend in the appeal that no winding up order should have been made by the Company Judge. But when a winding up order is made and it has become final, the workers ordinarily would not have any right to participate in any proceeding in the course of winding up the company though there may be rare cases where in a proceeding in the course of winding up, the interest of the workers may be involved and in such a case it may be possible to contend that the workers must be heard before an order is made by the Court. 11. By inviting the attention of this Court towards the provision of Section 529-A, learned counsel for the opposite parties submitted that in the case of winding up of a company, there has been given a priority for payment to the workmen’s dues and debts due to secured creditors and thus these two dues are different dues and cannot be mixed in one. Therefore, the workmen’s dues cannot be said as a debt for recovery of which, petition for winding up of the company can be filed and he further submits that in any manner the word ‘debt’ does not include the workmen’s dues. Therefore, from the provisions of the Act, it is clear that the legislation in legislating the Companies Act was in clear intention to permit the filing of the company petition including on some other grounds if the company is unable to pay its debts. He further relied upon a decision of the Hon’ble Supreme Court in the case of Mor Modern Cooperative Transport Society Ltd. v. Financial Commissioner & Secretary to Govt. of Haryana and another, 2002 (6) SCC 269 in which it has been held that it is trite to say that the intention of the legislature must be found by reading the statute as a whole. of Haryana and another, 2002 (6) SCC 269 in which it has been held that it is trite to say that the intention of the legislature must be found by reading the statute as a whole. The Court must ascertain the intention of the legislature by directing its attention not merely to the clauses to be construed but to the entire statute; it must compare the clause with the other parts of the law, and the setting in which the clause to be interpreted occurs. The expression used in a statute should ordinarily be understood in a sense in which they best harmonize with the object of the statute, and which effectuate the object of the legislature. He also relied upon a decision of the Hon’ble Supreme Court in the case of Commissioner of Income Tax, Orissa and others v. M/s N.C. Budharaja and Company and others, 1994 Supp.(1) SCC 280 in which it has been held that a statute cannot always be construed with the dictionary in one hand and the statute in the other. Regard must also be had to the scheme, context and to the legislative history of the provision. 12. In reply to the objections of the opposite parties on the maintainability of the present company petition, learned counsel for the petitioner submitted that the question as to whether “salary dues” to an employee by the respondent-company can be treated as a “debt” within the meaning of that term under Section 433 (e) read with Section 434 (1)(a) ) of the Act, has been answered by the Andhra Pradesh High Court in the case of M. Suryanarayana v. Stiles India Ltd., (2003) 16 Comp Cas, 448 in which it has been held that arrears of salary due to an employee of the company which is sought to be wound up can be a “debt” within the meaning of that term under Section 433(e) read with Section 434(1)(a) of the Act. 13. He further placed reliance upon a judgment rendered in the case of Argha Sen and another v. Interra Information Technologies (India) Pvt. Ltd., 2006 (133) Comp Cas 49 (Del). In this case, the employees filed the petition with the allegation that the terminal dues are not paid in spite of statutory notice and, therefore, it be deemed that the respondent-company is unable to pay the debt and it be ordered to be wound up. In this case, the employees filed the petition with the allegation that the terminal dues are not paid in spite of statutory notice and, therefore, it be deemed that the respondent-company is unable to pay the debt and it be ordered to be wound up. In this case, the Hon’ble Judge framed question as to whether non-payment of dues of an employee would constitute debt. The Hon’ble Judge relied upon the decision of the Hon’ble Supreme Court given in a case of Kesoram Industries and Cotton Mills Ltd. v. CWT, 1996 (59) ITR 767 in which the Hon’ble Supreme Court defined the ‘debt’ as under : “a debt means a sum of money which is now payable or will become payable in future by reason of present obligation, debitum in praesenti, solvendum in futuro. A debt involves an obligation incurred by the debtor and the liability to pay a sum of money in present or future. The liability must, however, be to pay a sum of money, i.e., to pay an amount which is determined or determinable in the light of factors, existing on the date when the nature of the liability is to be ascertained.” 14. In the light of the aforesaid decision of the Hon’ble Supreme Court, the High Court concluded that the dues, which are recoverable by the petitioner from the respondent-company, are the debts. As a corollary, the employee whose debts are not paid shall have to be treated as a creditor. In the aforesaid judgment, the Dehi High Court had discussed the judgment given by the Madhya Pradesh High Court in the case of Pawan Kumar Khullar (supra) and contrary to that, the judgment given by the Andhra Pradeh High Court in the case of Capt. B.S. Demogray v. VIP Airways Ltd., 1998 (94) Comp Cas 291; the Judgment of the Hon’ble Supreme Court given in the case of Kesoram Industries and Cotton Mills Ltd. v. CWT, 1966 (59) ITR 767 and expressed its full agreement with the view taken by the Andhra Pradesh High Court. B.S. Demogray v. VIP Airways Ltd., 1998 (94) Comp Cas 291; the Judgment of the Hon’ble Supreme Court given in the case of Kesoram Industries and Cotton Mills Ltd. v. CWT, 1966 (59) ITR 767 and expressed its full agreement with the view taken by the Andhra Pradesh High Court. The Hon’ble Judge has also taken care of the decision of the Hon’ble Supreme Court in the case of National Textile Workers Union v. P.R. Ramakrishnan (supra) and distinguishing the facts of both the cases observed as under : “While making the observation that the workers may not have right to file winding up petition under Section 433 of the Act, the Supreme Court treated them as workers alone and it was held that Section 439 does not mention the category of the workers. It may be mentioned that Section 439 stipulates various categories of persons who are competent to file a petition for winding up. The persons specified are company itself, creditor, contributory, the Re-gistrar and in some cases Central or State Governments. In this context the Supreme Court stated that workers are not included in Section 439. However, the position of workers was creditor as neither in issue nor dealt with by the Supreme Court. A worker per se may not have right to file the winding up petition. But when he becomes a creditor he will have right to file the petition as a creditor which category is stipulated in Section 439(1)(b) of the Act.” 15. In view of the aforesaid observation, the Delhi High Court held that if the employees as the creditors, who have not been paid their salaries and other allowances, file a petition for winding up, their petition would be maintainable under Section 439(1)(b) of the Act. However, the Court further observed that the normally at the instance of existing employee/worker the Court may not pass winding up order. Again this may not be a general rule and there may be instances justifying the exercise of this discretion for example, in a case where the factory/establishment is closed with no chance of revival and the workers whose dues remain unpaid and they have not been terminated either, those workers may have right to approach the Court for winding up as that would not be a case where they would be trying to bury the employer. The employer is almost dead. The employer is almost dead. The attempt of the workers, in such circumstances, would be to salvage whatever is possible so that assets are not frittered away and a liquidator is appointed to ensure that they get their legitimate dues under Section 529-A of the Companies Act once the company is wound up. 16. In one case i.e. Gopal Krishna Sharma and another v. Shahibi General Finance and Investments Ltd. and others, 2005 (125) Comp. Cas 96-97, one of the ex-directors of the respondent-company filed the company petition for winding up of the company. An objection was raised on behalf of the opposite parties on the point of maintainability of the petition on the ground that the petitioner is one of the ex-directors of the respondent-company and he cannot resort to the provisions of the Companies Act, 1956, for winding up of the respondent- company for recovery of his dues. He has remedy of the suit for recovery of the amount allegedly due against the respondent-company. Being in agreement with the objections raised by the opposite parties, the Hon’ble Court held that the petitioner being one of the ex-directors of the company cannot resort to the provisions of the Companies Act, 1956 but after perusal of the aforesaid decision, I do not find that the Hon’ble Judge has discussed the term “debt” as has been discussed by the Hon’ble Courts in other matters, which are referred hereinabove whereby the salary has been included in the term “debt” for the purpose of filing petition for winding up on the eventuality of non-payment of debt by the Company. 17. After going through the decision discussed hereinabove, I am of the view that the employee of the company can file the company petition for winding up of the company on its failure to pay the salary to the employees but passing the order for winding up of the company depends upon the satisfaction of the company judge that there is no other mode to claim the dues and salary and further without winding up of the company, the same cannot be paid. Therefore, I hereby entertain the present company petition subject to determination that the petitioner was employee of the opposite party and without the order of winding up of the company, the payment of dues against the salary is not payable. 18. Therefore, I hereby entertain the present company petition subject to determination that the petitioner was employee of the opposite party and without the order of winding up of the company, the payment of dues against the salary is not payable. 18. Now, the relevant facts of the case are to be dealt with to determine the question as to whether at the behest of the employees as creditors, the present company can be wound up or not. The petitioner is a share holder of the company amongst the first subscribers of shares of the company having 100 equity shares. He was working in the predecessor company known as M/s. Avadh Rubber Plastic Industries Pvt. Ltd. as one of the directors of the company and was getting remuneration as prescribed by the Act for the post of full time director for the last 13 years i.e. from 1990 to January, 2003. When the petitioner did not receive his remuneration from the month of February, 2003, he informed the Registrar of the Companies that the company has not paid increments due to him for the last 8 years despite repeated assurances. The petitioner also sent a legal notice but of no avail. It has been alleged that the company neglected to pay petitioner’s dues as per notice dated 19.5.2003 and the total outstanding dues of company payable to the petitioner is Rs.12,19,864.32 till April 30, 2003. Since the company wilfully neglected in discharging its liabilities towards petitioner for making payment, it has been submitted that company is liable to be wound up under Section 433(e) of the Act on the ground of its inabilities to pay debt. It has also been indicated that the Employees Provident Organization informed him that his EPF contribution upto July, 2003 had been deducted by company and information that the petitioner has resigned on 1.9.2003 had also been transmitted by the company. 19. On the other hand, replying the contentions of the petitioner, the opposite parties submitted that the petitioner was appointed in the company as one of the Board of Directors at the time of its incorporation but over a period of time, it was felt that it was not possible for the petitioner to fulfil his duties as a Director of the Company. Under the circumstances, on 18.10.1996 the company had appointed alternative authorised signatory because the petitioner was not available for signing cheques and other bank documents. Further, on 23.12.1999, the company changed name of occupier and Mr. Subhash Sarraf was replaced. The petitioner was not even available for Board of Directors meetings and it was felt that he would not be able to fulfil his duties as Director. As a consequence, in August, 2001 the petitioner was informed the same and he offered to resign. The request was accepted on 27.8.2001 and he was relieved of charge of director of company. The petitioner has controverted these facts and submitted that the story of resignation is fabricated and has further submitted that for the removal of Director, procedure prescribed under the Act has not been followed and the Registrar of Companies was also not intimated. It has further been submitted by him that there was unwarranted pressure upon the petitioner to sign blank cheque books and to hand over the same to the Managing Director of Company. Since he refused to do the same, alternative authorised signatory was introduced. The petitioner has also levelled allegations that the tax authorities were deceived and the tax authorities took some action against opposite party No. 1 in 1998-99. 20. Learned counsel for the petitioner submitted that vide notice dated 16.5.2003 the petitioner demanded his salary from February, 2003 to April, 2003 alongwith other allowances as well as increments from 1995 to April 2003 @ 15% per annum but the same was not responded. Under the circumstances, he filed the present company petition. This fact has been denied by the opposite party No. 4 that since the petitioner ceased to be on rolls of company after 31st January, 2003, there is no question of payment of any salary from February to April, 2003 and thereafter. So far as the payment of increments is concerned, it has been submitted by the opposite parties that no director of company is paid increments nor is entitled to an increments. Further it was submitted that telephone bills were not payable by the company. So far as the payment of increments is concerned, it has been submitted by the opposite parties that no director of company is paid increments nor is entitled to an increments. Further it was submitted that telephone bills were not payable by the company. On the other hand, learned counsel for the petitioner has submitted that he had been given increments in 1992-1993, 1994 but since he refused to cooperate in illegal activities of company, increments were stopped whereas other directors have been paid increments, which can be seen by asking the opposite parties to produce Form 12, which is not controverted. 21. After going through the several contrary facts as has been discussed hereinabove, I am of the view that before passing any order for winding up of the company, I have to arrive at conclusion that the petitioner is entitled for the salary for the period he claimed and the same has become due, for which I have to determine the several disputed facts, which can be determined only after going through the evidences adduced by the parties. Therefore, I am of the view that the civil Court is the best Court to determine the factual aspects involved in the matter for payment of salary to the petitioner and the petitioner can resort the claim for payment of salary under the term ‘debt’ by filing the civil suit before the civil Court. 22. Therefore, in view of the observations made hereinabove, I hereby dismiss the company petition. 23. No orders as to costs. ————